According to a Reuters report on December 27, 2023, Russia and Iran have signed an agreement designed to replace the dollar with their own currencies in bilateral trade. The agreement was reportedly finalized during a meeting between the heads of the two countries’ central banks in Russia. “Banks and economic actors can now use infrastructures, including non-SWIFT interbank systems, to transact in local currencies,” Iranian state media reported.[i]
Throughout 2023, the main agenda of BRICS was the issue of dedolarization. On August 22, 2023, at the BRICS forum held in Johannesburg, South Africa, the application of 6 countries (Saudi Arabia, Argentina, United Arab Emirates, Ethiopia, Iran and Egypt) was accepted and it was announced that these countries would officially become BRICS members as of January 1, 2024. Russian President Vladimir Putin, who attended the summit via videoconference, stated that a “new world order” was emerging. “BRICS does not compete with anyone and does not oppose anyone, but it is clear that the process of creating a new world order has its opponents who are trying to prevent the establishment of independent centers of development and influence,” Putin said in his speech, emphasizing that they want to create a new multipolar world order that is fair and will help preserve the diversity of national cultures.[ii]
As of January 1, 2024, Iran officially joined the BRICS alliance and Russia, a founding member of BRICS (given that both countries are already subject to US sanctions), signed this bilateral trade agreement, which is a very important step in the context of Putin’s attempt to establish the “multipolar world” system. The next BRICS Summit will take place in October 2024 in Kazan, Russia, and will be attended by 5 new members. Argentina, whose membership application was accepted in August 2023, shelved the BRICS membership process with the decision taken by the newly elected President Javier Milei.[iii] Speaking at a meeting of the ruling United Russia Party in Russia, Foreign Minister Sergey Lavrov stated that nearly 30 countries are willing to join BRICS or at least to establish dialogues to cooperate in certain areas.[iv]
One of the main ideas propagated by the BRICS alliance in the context of international trade is the use of countries’ own local currencies instead of the dollar. Moreover, there is talk that BRICS will create its own international currency as a substitute for the dollar. Russian economist Sergey Glazyev said that BRICS is working on this currency and that this issue will be the main agenda item of the BRICS Forum in 2024.[v]
According to a recent article by Joe Sullivan, an American economist and former White House advisor, such a currency could potentially knock the dollar off its perch at the top of global trade markets and from its position as the dominant reserve currency. With Egypt, Ethiopia and Saudi Arabia, BRICS could account for 12% of global trade. This is because these three countries border the Suez Canal, a key gateway for goods to flow to international markets. Sullivan also pointed to the Chinese yuan, which is outpacing other global currencies in trade as Beijing’s trading partners increase its use. Sullivan warned that these trends could eventually put the dollar in a similar position to the British pound sterling, which lost its international dominance in the 1800s.[vi]
As a result, the expansion of the BRICS alliance creates an important battleground to challenge the concepts of “unipolar world system” and “American hegemony”, which countries like Russia complain about in principle. The use of local currencies in international trade, and especially a potential new currency launched by the BRICS, may revolutionize the dedolarization effort.
[i] “Iran, Russia to Trade in Local Currencies Instead of US Dollar-State Media”, Reuters, https://www.reuters.com/world/iran-russia-trade-local-currencies-instead-us-dollar-state-media-2023-12-27/, (Date Accession: 28.12.2023).
[ii] Güvendik, M., et al, “BRICS, 6 yeni ülkeyi üyeliğe davet etti”, Anadolu Ajansı, https://www.aa.com.tr/tr/dunya/brics-6-yeni-ulkeyi-uyelige-davet-etti/2975005, (Date Accession: 28.12.2023).
[iii] “Lavrov: Arjantin, BRICS Üyeliğini Gözden Geçirmek İçin ‘Mola’ Aldı”, Sputnik, https://sputniknews.com.tr/20231226/lavrov-arjantin-brics-uyeligini-gozden-gecirmek-icin-mola-aldi-1078965982.html, (Date Accession: 28.12.2023).
[iv] Ibıd.
[v] Dsouza, V., “BRICS Currency To Be a Major Focus at 2024 Summit?”, Watcher Guru, https://watcher.guru/news/brics-currency-to-be-a-major-focus-at-2024-summit, (Date Accession: 28.12.2023).
[vi] Sor, J., “BRICS countries Could Swing An ‘Economic Wrecking Ball’ At Dollar Dominance Even Without A Shared Trade Currency, Former White House Economist Says”, Business Insider, https://markets.businessinsider.com/news/currencies/dedollarization-brics-currency-wars-dollar-international-trade-central-bank-reserves-2023-11, (Date Accession: 28.12.2023).
